Bad things are happening to the auto industry and related industries in the United States in recent weeks. You may not have heard, because so much else has dominated the news cycles. But ... bad things are happening.
On Thursday, September 11, Tricolor Holdings entered bankruptcy. This was not the standard corporate "let's try to reorganize and shed some of this debt" bankruptcy, chapter 11. No: Tricolor went right to "let's just liquidate and be done with it" bankruptcy. Chapter 7. A rare admission by corporate leadership that there is nothing to salvage there.
Who was Tricolor? It was a company that lent to car buyers and that sold used cars at auctions. It was a considerable presence in the southwestern US, specializing in lending (and/or selling used cars to) Spanish-speaking buyers. Its name is a reference to the Mexican flag.
Soon thereafter attention turned to CarMax. This is a bigger player than Tricolor in both of the markets they share, subprime auto finance and used car sales. CarMax held a disappointing earnings call with analysts on September 25. In that call it had to contradict earlier assurances to investors that its expected bad-credit write downs were contained. There is deterioration in reliability with regard both its older and its newly originated loans. CarMax almost certainly will not be declaring bankruptcy any time soon -- surely not chapter 7! -- but it did take a gut punch as the stock price collapsed upon these disclosures.
Auto related company number three? First Brands. On September 28 First Brands declared bankruptcy (chapter 11 -- whew, what a relief!).
Who is First Brands? It's an auto parts concern, and although you dear reader may not know the company name, you know the names of several of its products, including for example TRICO wiper blades, FRAM filtration products and Raybestos brake parts.
So ominous did all this seem that in the opening days of October we got word that the Trump administration is "considering significant tariff relief for US vehicle production." I won't discuss cause and effect right now. But I will say that it is always heartwarming when the arsonist shows up to try to put out a fire.
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